Executing & Terminating Employment Contracts in Turkey

Overview

As Turkey maintains economic stability and growth for almost five years, the confidence of the foreign investors raised and new direct investments are executed more often. In this context employee related issues are of consideration to foreign investors and significance of the Turkish Labor Code (‘TLC’) elevate accordingly. Therefore we would like to briefly inform foreign investors regarding the precautions that shall be thought over while hiring and firing employees in Turkey.

First of all contract types specified in TLC must be considered. There are mainly four types of employee contracts subject to their terms. The first determination is for work less and more than 30 days but for a short and designated term anyway (continuous, discontinuous) and the second determination is for limited and unlimited duration types of contracts which are based on the designation of work period specifically for projects etc. or no designation. Please note that regular employee arrangements in Turkey are generally considered to be contracts for unlimited duration (all types of office staff, directors, managers etc.).

Execution of Employee Contracts

Execution of an employee contract (which is referred as a ‘Service Contract’ in Turkish law) is a simple task. For contracts that are for one year or more TLC states that the contract shall be in writing. The employer shall not postpone such execution of a contract more than two months after the initial commencement of the employee to work. Please also note that TLC allows for a maximum of two months of probationary period (test period) where the employee and/or the employer could terminate the relation without being subject to TLC’s termination clauses below explained. Employment contracts are free of any documentary taxes and levies such as stamp duties.

It should be noted that the terms and conditions of employee contracts are only applicable to the extent where they are in compatible with the irrevocable rights of the employees stated in TLC. Therefore employers are advised to obtain legal assistance before executing employment contracts in order to understand the actual effects of such contacts to their organizations.

Termination of Employment Contracts by Employers

Termination of employee contracts by employers could be classified under two main categories. The first is termination without just cause and the second is termination with just cause. Termination of an employee contract without just cause (or any specific fault on the employee) is naturally at the discretion of the employer. The automatic outcome of such termination is compensatory amounts. There are different types of payments to be made to the employees at immediate termination:

Notification Compensation: This is a compensatory amount paid to the employee at immediate termination if termination notice subject to the designation of the TLC is not provided earlier. Therefore if an employer wishes to terminate an employee immediately without any notice period, such employer shall pay to the employee the following amounts of salary to compensate for that period:

2 weeks of pay for employees worked for less than 6 months;

4 weeks of pay for employees worked for more than 6 months, less than 18 months;

6 weeks of pay for employees worked for more than 18 months, less than 36 months;

8 weeks of pay for employees worked for more than 36 months.

Severance Compensation: For any termination without just cause of the employees who worked for more than 1 year, the employer should pay this compensation to the employee.

Severance compensation will not be paid under the following circumstances: a) if the employee resigns or b) the employee and the employer execute an agreement for the mutual termination with and c) at the end of a limited duration contract.

Annual Leave Compensation: Please also note that, pursuant to Article 53 of TLC; employees, who have worked at least one year, shall be entitled to an annual paid leave. The periods for annual paid leaves are determined according to seniority of the employee. Nevertheless the period of annual paid leave granted to employees, may not be less than:

1 year to 5 years (including) 14 days5 years to 15 years (excluding) 20 daysMore than 15 years 26 days

If there is immediate termination without just cause the annual paid leaves that accrued but not used by the employee shall be paid for at termination.

Accrued Salary and Bonuses: Naturally if the employee is terminated without cause any accrued salary and bonus payments shall also be paid to the employee at termination.

Re-Appointment Compensation: Whether it is limited or unlimited employment contract, employers could terminate the contract immediately based on causes designated under Article 25 of TLC such as health problems, inconvenient behavior against moral code, forces majeure (any specific reason to prevent the employee from working for more than one week), if the employer is taken into custody or arrested and if the absenteeism exceeds the notification periods designated in TLC.

On the other hand some types of employers are obliged to depend on a just cause to terminate their employee contracts whatsoever. However these explanations below should not be confused with the immediate termination of employment contract with just cause above explained. It is explicit that there is no other cause to be sought to terminate the contract in the presence of the said reasons above.

In accordance with the Article 18 of TLC; the employers that employ more than 30 could not terminate the unlimited contracts of their employees with a seniority of 6 months without justified legal causes. Therefore termination notice shall be in writing and should depend on a legal ground. If such employees terminate their employees without just cause, in addition to the above stated compensation amounts, the employers will be subjected to a ‘Re-appointment Compensation’ which is awarded by the Courts to filing employees that are terminated. The amounts awarded for re-appointment could be over one year salary of the employee. However it should also be noted that re-appointment compensations are not awarded to ‘employer representatives’, who are employees acting on behalf of the employers such as general managers etc. and who are authorized to manage the workplace and to hire and terminate employees.

According to the Article 19 of TLC, employers are obliged to notify their employees with written notifications containing clear and definite justifications for their termination. In parallel with the principles of ILO (International Labor Organization), employers could not terminate an unlimited contract in the absence of a previous defensive statement obtained from the employee. It should be noted that the employers should also produce documentation to prove the justified termination grounds before the Courts.

In consideration of the above stated compensatory amounts, the employers should obtain legal counsel before executing or terminating employment contracts in Turkey. It should be noted that the labor laws in Turkey are not less controlling than the laws of France, if not more.